Unpacking the Rising Cost of Travel: Insights from Industry Experts

Inflation is a topic of concern for everyone. Coupled with the surge in demand following the pandemic, it has driven up vacation costs — exacerbated by turmoil in Eastern Europe and the Middle East leading to fuel price increases and supply crises. From July 2023 to July 2024, the expense of a European package holiday rose by an average of 6.6% as per EU organization Eurostat, and similar patterns are anticipated for flights and accommodations. Starting from 2025, there are additional charges such as new tourist levies on the horizon. But is it solely bad news?

What’s driving up flight prices?

In the October 2024 budget, the UK authorities disclosed that, effective 2026, air passenger duty for individuals aged over 16 will rise by approximately 15% to ‘reflect previous high inflation’. While the charge on domestic and short-haul flights — in economy, £8 and £15 respectively — seems modest, it’s £102 and £106 per way for mid- and long-haul journeys. Concurrently, France has suggested tripling its aviation tax from 2025 to tackle a budget shortfall, which could increase the cost of an economy ticket for long-haul routes by up to £33, while Denmark plans to introduce a new flight tax in 2025 as part of its environmental shift — this will be gradually implemented, costing up to £45 by 2030. Although airlines will bear these costs, ultimately passengers will shoulder the burden.

What else is influencing prices?

After certain models of Boeing 737-9 MAX planes were grounded due to safety worries in January 2024, the US Federal Aviation Authority restricted Boeing from increasing production, hindering the manufacturer’s ability to meet delivery timelines. Airbus faced challenges maintaining its production schedules as well, due to shortages of engines and other parts. The resultant shortage of new aircraft has affected airlines globally, with insufficient supply to satisfy customer demand, invariably leading to increased costs for consumers.

How is the green transition affecting costs?

Beginning in 2027, the majority of flights will be subjected to the International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme, which mandates airlines in its 126 member countries to compensate for any rise in CO2 emissions above predetermined thresholds. Fuel suppliers at European Union airports will also be required to enhance the Sustainable Aviation Fuel in their blends — starting with 2% from 2025 and escalating to 70% by 2050.

All of this will lead to extra expenses, partially due to necessary technological advancements. However, Martin Nolan, Skyscanner’s sustainability authority, suggests it should only result in a “slight impact” on passenger fares. “Ultimately, supply and demand will always remain the primary factor influencing ticket pricing,” he states.

What’s the situation with hotel prices?

Ascending significantly worldwide since 2022, the ‘revenge travel’ phenomenon — making up for overdue experiences post-pandemic — has made demand surge. Yet, there are additional factors at play. In Japan, for example, the weak yen spurred inbound tourism and consequently increased demand, particularly from neighboring East Asian countries. In New York City, government regulations reduced available accommodations. Previously, Airbnbs represented 10% of lodging options, according to The New York Times, but recent actions against short-term rentals have led to a reversion to hotels, heightening demand. Surging operating costs due to post-Covid staffing shortages and rising energy expenses have also compelled operators to increase prices.

While room charges will continue to escalate in 2025, the most recent Hotel Monitor report from Amex GBT Consulting forecasts they will stabilize due to an unprecedented number of properties being developed across the globe. Over 2,500 new hotels are set to open by the end of 2024, with an additional 2,700 anticipated by the close of 2025.

Are any further costs emerging?

Tourist levies have become increasingly widespread, and Thailand is poised to join the 60-plus destinations that charge from mid-2025. Meanwhile, in Venice, the day-tripper fee implemented last April will rise from €5 (£4) to €10 (£8) in April 2025 for those who fail to pre-pay. “I can foresee beach resorts, not just cities, imposing tourist taxes in the near future,” remarks Paul Scott, founder of My Budget Break.

Additionally, more nations are adopting electronic travel authorizations to screen entrants, following the examples set by the US, Canada, and New Zealand. The EU is anticipated to unveil its long-awaited variation, the European Travel Information and Authorization System (ETIAS), in 2025. Users will incur a fee of €7 (£6) every three years to maintain their ETIAS validity.